Silver Market Update

In the last update we had defined silver's overall trend as neutral, with
it being rangebound between clearly defined and significant zones of support
and resistance, and thus a trading sell towards the top of the range, i.e.
on an approach to the $16 area, and a trading buy towards the bottom of it,
in the $12 area. Since that update silver has regrouped and made another run
at the resistance, but got no further than $15.20. However, over the past week
the COT structure for silver, which was already deteriorating as we had earlier
observed, has continued to worsen to the point that it has become bearish,
at least over the short-term.

On the 3-year chart we can see how the failure of the uptrend in force from
last November shifted the intermediate trend from up to neutral, with the latest
now bearish COT picture increasing the risk of silver dropping back to the
support in the $12 area, which would not alter the intermediate trend from
its current neutral status.

The long-term chart for silver is most interesting as it shows that while
silver has outperformed gold on the rally from the lows late last year, overall
it has underperformed gold over the course of the bullmarket this decade. The
savage plunge last year breached the long-term uptrend and was a warning, signaling
as it did a change of major trend from up to neutral, meaning that a giant
top could be forming. Thus, we will treat the overall trend as neutral whilst
the price remains between the major support and resistance levels shown. This
chart makes clear that a break of the relatively close support level in the
$12 area would be a serious development that would open up the risk of a drop
back towards the lower support in the $8 area, where silver would of course
be a trading buy again.

Whilst silver is classified as a Precious Metal, industrial demand for it
is a much greater determinant of its price than is the case with gold. This
is why it got smashed last year - and why it is once again vulnerable. As pointed
out in the Gold Market update, silver lease rates have fallen back close to
zero and warehouse levels of base metals are at extremely high levels, which
indicate hoarding by speculators rather than a pickup in industrial demand,
which is bearish. For these reasons should the broad stockmarket crater again,
silver could be hit hard.

The above represents the opinion and analysis of Mr. Maund,
based on data available to him, at the time of writing. Mr. Maunds opinions
are his own, and are not a recommendation or an offer to buy or sell securities.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation
of any kind from any groups, individuals or corporations mentioned in his reports.
As trading and investing in any financial markets may involve serious risk
of loss, Mr. Maund recommends that you consult with a qualified investment
advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction
and do your own due diligence and research when making any kind of a transaction
with financial ramifications.